BP could invest a total of $20 billion in all in India Reliance deal

Reliance Industries Limited and BP announced BP taking a 30% stake in 23 oil and gas production sharing contracts that Reliance operates in India, including the producing KG D6 block, and the formation of a 50:50 joint venture between the two companies for the sourcing and marketing of gas in India. The joint venture will also endeavour to accelerate the creation of infrastructure for receiving, transporting and marketing of natural gas in India.

Future performance payments of up to US$1.8 billion could be paid based on exploration success that results in development of commercial discoveries. These payments and combined investment could amount to US$20 billion.

The move has come after negotiations of 2 years, BP CEO Bob Dudley said in London.

It also has come at an opportune time for Reliance which has been struggling to raise the output of its prolific KG D6 gas block in the Bay of Bengal. For BP, the India investment gives a much needed diversification from its accident-stricken Gulf of Mexico operations.

The move is the biggest foreign investment deal in India after the $11 billion proposal by the Korean steel giant POSCO to set up a steel plant in Orissa.

BP will pay Reliance Industries Limited an aggregate consideration of US$7.2 billion, and completion adjustments, for the interests to be acquired in the 23 blocks.

The 23 oil and gas blocks together cover approximately 270,000 square kilometres. This will make the partnership India’s largest private sector holder of exploration acreage.

So that the joint venture can capitalise on Reliance’s outstanding project management track record and operations expertise, Reliance will continue to be the operator under the production sharing contracts, whose blocks lie in water depths ranging from 400 to over 3,000 metres. These currently produce about 1.8 billion cubic feet of gas per day (bcf/d), over 30 per cent of India’s total consumption, and over 40 per cent of India’s total production.

“India is one of the fastest growing economies in the world. By allying ourselves with Reliance, we will access the most prolific gas basin in India and secure a place in the fast growing Indian gas markets, creating a genuinely distinctive BP position,” said Bob Dudley. “BP looks forward to a long and successful working partnership with Reliance.”

—update—

Mukesh Ambani said that he expects to get the government nod “soon”. The first payment from BP would be made in the next financial year, he added.

All the blocks will have the same proportion of BP ownership.

—update—

Dudley also said that a total of 15 trillion cubic feet of gas-equivalent is being bought through the deal. The official reserve size of the D6 block is 11 trillion cubic feet, out of which 30% will go to BP under the deal. The firm did not say where the remaining quantity of the gas comes from.

—update—

$9 billion is the money coming in to RIL from the deal, while $11 billion is what BP is expected to invest in building out the joint venture and in developing the various Reliance’ fields which already have proven reserves.

—update—

The current total production of the total assets under the deal is 1.8 billion cubic feet a day, Dudley added. BP will get 30% of it from day one, he pointed out.